What You Should Know About Savings Accounts

Most Americans are not prepared for a financial emergency. According to a survey released Monday by Bankrate.com, just 24 percent of Americans have enough money saved to pay for at least six months' worth of expenses. Just over 1 in 4 respondents reported having no emergency savings at all. Those numbers are alarming, but consumers might not be the only ones to blame for the precarious state of their finances.

Indeed, part of the problem might be banks themselves. A new study from the Consumer Federation of America finds that many bank accounts feature "anti-saving practices," including limits on the number of withdrawals, hidden fees, restrictions on dormant accounts and interest rates so low they might as well be nonexistent. Stephen Brobeck, executive director of the CFA and author of the new report, says he's "discouraged" by the practices and that consumers would benefit if more banks found ways to promote savings.

Some banks are already doing so. Brobeck points to programs, most common at larger banks, that incentivize saving by waiving fees for automatic transfers into savings accounts, for example. Automatic savings, he says, is one of the most effective ways for Americans to save, which is why programs such as regular deposits into retirement accounts and even mortgage payments that build home equity can work so well.

--Larger banks are more likely than small ones to offer innovative programs that incentivize savings and to make it easy for consumers to find fees and interest rates, but they're also more likely to charge higher fees, pay lower interest rates and require a higher minimum balance.

--Many banks make it difficult to learn about all of the fees associated with their accounts, especially fees on dormant accounts. To find information, Brobeck recommends first visiting the main page for a bank's savings accounts. "Thoroughly explore that page and any links on that page? see if there is a statement of terms and conditions. You can find dormancy fees in those disclosures," he says. While most banks do not charge such a fee for balances over $100 or $200, he did find one Internet bank that charged $10 a month after six months of inactivity. The report also found that more than half of banks do not disclose interest rates on their website, and 20 percent do not disclose monthly fees.

--Interest rates are low across the board. "We were disappointed by the very low interest rates," Brobeck says. The vast majority of banks pay such a low rate that it would generate just $2.50 a year on a balance of $1,000.

--There's not much consumers can do about those low interest rates. "What's important is that they save regularly," Brobeck says. "Virtually every bank and credit union will allow regular preauthorized deposits from checking to consumers, and every consumer, particularly if they're having difficulty building liquid funds, should take advantage of that opportunity."

--Some accounts come with high minimum balance requirements. "We were surprised by the high minimum balance required by some banks to avoid fees," Brobeck says, citing minimums of $300 or higher.

--Incentives work. "There needs to be more incentives for low- and middle-income households to save," Brobeck says. He suggests that as part of larger tax reform, the federal government pay 3 percent on all savings accounts up to $500. "It represents a small amount compared to the tax breaks enjoyed by upper-income families? if there was tax reform, this is one way the imbalance could be addressed," he says.

Despite their problems, savings accounts at banks remain the best way for lower- and middle-income Americans to save money, especially since bank accounts are insured (up to $250,000 per depositor) by the federal government. And savings accounts offer an essential buffer against costly and unexpected life events.